Holding

An allocation of market area to a dealer and a clause allowing arbitrary withholding of supply are per se restrictive trade practices, but the Commission cannot revive a terminated contract or issue a cease‑and‑desist order absent a specific finding that the termination itself perpetuates the restrictive practice.

Summary

The appellant, Mis. Peico Electronics, terminated the dealership of its second dealer (R‑2) under Clause 29 of a standard form agreement. R‑2 complained before the MRTP Commission alleging several restrictive trade practices, including territorial allocation, discrimination, and a clause (Clause 7) that allowed the company to withhold supply arbitrarily. The Commission found the company guilty of restrictive trade practices, held Clause 7 per se restrictive, ordered its amendment, and directed restoration of the terminated dealership and continuation of supplies. On appeal, the Supreme Court upheld the finding that allocating a specific market area to a dealer is a restrictive trade practice under Section 33(g) and that Clause 7 is per se restrictive, but set aside the Commission’s finding of discrimination under Section 2(0)(ii) for lack of evidence, and held that the Commission exceeded its jurisdiction by ordering the revival of the terminated contract and by issuing a cease‑and‑desist order that became moot. The Court modified the Commission’s order, directing amendment of Clause 7 in all dealer agreements and refusing to enforce the restoration of the dealership, disposing of the appeal without costs.

Issues considered

The validity of allocating a specific territory to a dealer as a restrictive trade practice under Section 33(g) of the MRTP Act.
Whether Clause 7 of the dealership agreement, which permits arbitrary withholding of supply, constitutes a per se restrictive trade practice.
The adequacy of the Commission’s finding of discrimination under Section 2(0)(ii) and the requirement of a finding of unjustified consumer burden.
The jurisdiction of the MRTP Commission to direct revival of a terminated dealership agreement and to issue a cease‑and‑desist order.
The procedural requirements of natural justice and the Commission’s power to frame issues suo motu.

Legislation cited

Monopolies and Restrictive Trade Practices Act, 1969s. 10, s. 12-B, s. 2(0)(ii), s. 33, s. 35, s. 37, s. 38, s. 48
Specific Relief Acts. 14, s. 41

Subjects

restrictive trade practiceterritorial allocationdiscriminatory treatmentClause 7MRTP Acttermination of dealershipcommission jurisdictioncease and desist orderamendment of agreement

Judgment

MIS. PEICO ELECTRONICS AND ELECTRICALS AND ANR. A
v.
UNION OF INDIA AND ANR.

MARCH 9, 2004

[P. VENKATARAMA REDDI AND S.H. KAPADIA, JJ.] B

Monopolies and Restrictive Trade Practices Act, 1969; Ss. 2(0)(ii), 10,
33, 37 & 38:

Dealership agreement-Notice-Termination on ground of non- C
performance as per terms of the agreement-Complaint-Commission holding
that the Company indulged in certain restrictive trade practices prejudicial to
public interest-Directed the Company to continue supply of the goods and
take measures to amend the offending clause from dealership agreement-On
appeal, Held: Allocation ofan area/market for disposal ofthe goods amounting D
to restrictive trade practice-Restricting one dealer to sell the products in
certain area while allowing the other dealer, amounts to discriminat01y
treatment-The Company could not impose such restrictions-However, in the
absence of any finding on the issue of discriminatory treatment, charges of
favourable treatment against other dealer not proved. Restrictive trade E
practice-Scope of s.2(0)(ii) and Section 33(1)-Discussed.

Dealership Agreement-Clause 7-Validity of-Held: since manufacturer
could intentionally or arbitrarily withhold supply of goods and yet disown
liability, it is per se restrictive trade practice.

Jurisdiction of the Commission-Held: Commission vested with power
F
to enquire into any restrictive/monopolistic trade practice upon information
or suo motu-omission to record proceedings framing an issue does not
vitiate the findings, however, adequate opportunity ought to have been given
to the affected party-Court, while testing validity of actions taken by the
Commission on the procedural aspects, should avoid a narrow approach, and G
adopt the approach which conforms to objective of the Act-However,
Commission cannot assume the role of a Civil Court-In absence offindings
as to how termination of the agreement would per se give rise to restrictive
trade practice/circumvent any trade practice, the Commission should not have
gone beyond its powers by reviving the Contract, and resuming supply of H
883
SUPREME COURT REPORTS

-
884 [2004] 2 S.C.R.

A goods-To that extent, direction of the Commission unsustainable.
Appellant-Company manufacturing audio products, had a dealer
since long and subsequently appointed another dealer, Respondent No.2,
on certain terms and conditions. Later, the Company after serving a notice,
terminated the dealership of Respondent No.2 in terms of Clause 29 of
B the agreement. Respondent-dealer filed a complaint before the Commission
alleging certain restrictive trade practices being followed by the Company.
The Commission held an enquiry, framed five charges of restrictive trade
pritctices against the Company and came to a finding that the appellant
--
had indulged in certain restrictive trade practices prejudicial to public
C interest; that Clause 7 of the agreement per se amounted to restrictive
trade· practice and directed to amend the clause from the dealership
agreement and not to terminate the dealership of Respondent No.2. Hence
the present appeal.

It was contended for the appellant-Company that the Commission
D arrived at its findings arbitrarily without regard to evidence on record
and so its findings are perverse; that the Commission exceeded its
jurisdiction by directing restoration of dealership and for deletion of
Clause 7 of the agreement; and that it failed to give a finding to the effect
that the alleged trade practice was prejudicial to public interest while
E passing the cease and desist order against the Company.

Disposing of the appeal, the Court
-· I

HELD: 1.1. By virtue of Section 33, read with Clause (g) of the
Monopolies and Restrictive Trade Practices Act, an agreement to allocate
F any area or market for the disposal of the goods is deemed to be an
agreement relating to restrictive trade practice as the allocation of a
particular area or market for the disposal of the goods likely to hamper
or restrict the competition. The Company could not impose such restriction
in the course of dealings with its dealers. [891-D-F]

G 1.l. The charge of discrimination against the ·company was held
established by the Commission o!11Y on the ground that the other dealer
was given freedom to sell the Company's products from a market, but
the complainant, other dealer, was not allowed to sell the products from
the same market. This has resulted in discriminatory treatment against
H the complainant, attracting Section 2(0)(ii) of the Act._To the extent that
the area restriction was placed on the complainant but not on the other (
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. 885
dealer, it would be an instance of discrimination and the finding of the A
Commission to this extent cannot be faulted. However, the Commission
did not record any finding with reference to the charge that there was
discrimination in the matter of supply of goods. Yet, the Commission
proceeded on the basis that the charge as a whole was proved. Be that as
it may, there is a formidable difficulty in sustaining this charge. The B
Commission held that the act of discrimination is a restrictive trade
practice within the meaning of Section 2(0)(ii) of the Act. There is no
finding whatsoever with respect to one of the crucial ingredients of Section
2(0)(ii). Moreover, nothing found in the evidence to enable the Commission
to arrive at a finding on the question whether the act of the appellant in
disallowing the complainant from effecting the sales from its shop at the C
same market had resulted in or likely to result in the imposition of
unjustified burden on the consumers. Therefore, the Commission's finding
under the charge that by giving favourable treatment to other dealer, the
appellant resorted to restrictive trade practice within the meaning of
Section 2(0)(ii) was legally erroneoi,s. [892-B-E; 893-E-F]
D
Hindustan Lever Ltd. v. Director General (Investigation & Registration)
and Anr., (2001] 2 SCC 474, relied on.

2.1. The Commission rightly held that Clause 7 of the agreement,
in its present form, has the potential of bringing about a restrictive trade E
practice and therefore it should be amended. The Clause is heavily weighed
in favour of the Supplier. Taking umbrage under the latter part of the
Clause, the Supplier could arbitrarily withhold or delay the supply of
goods without assigning any reason and yet disown its responsibility or
liability arising out of its arbitrary action. Hence, the Commission was

-- justified in holding that it was per se a restrictive trade practice. An F
agreement to limit, restrict or withhold the output or supply of any goods
falls within the mischief of clause (g) of Section 33(1) of the Act and
therefore it must be deemed to be an agreement relating to restrictive trade
practice as per the mandate of Section 33(1) of the Act. (893-H; 894-A-C)

Valtas Limited, Bombay v. Union of India and Ors., [1995] Suppl. 2 G
sec 498, relied on.

- 2.2. The Commission is invested with the power to enquire into any
restrictive or monopolistic trade practice upon its own knowledge or
information, and take necessary follow-up action. The Commission would H
be failing in its duty if it does not take note of restrictive trade practices
886 SUPREME COURT REPORTS [2004) 2 S.C.R.

A that come to its notice in the course of enquiry into a complaint. However,
-
the omission to record a formal proceeding framing an issue or the point
for suo motu consideration does not by itself vitiate the decision of the
Commission. It is implicit in the exercise of such power that adequate
opportunity ought to be given t'o the affected party to meet the point which
is the subject matter of suo motu enquiry. In testing the validity of the
B 3ction taken by the Commission from the procedural angle, the approach
of the Court should be such as to promote the objectives of the Act. A
narrow or pedantic approach ought to be eschewed. Viewed from this
angle, it cannot be held that the Commission did not act within its limits
in testing the legality of Clause 7 and that the appellant was handicapped
C in meeting its case on account of non-framing of 'charge' relating to the
Clause. Therefore, the Commission, in exercise of its power under clause
(b) of Section 37(1), directed that the clause should be suitably amended
so as to remove the offensive sting in it. [895-G-H; 896-A-E]

2.3. The Commission's directive restraining the appellant-company
D from acting on letter of termination of dealership of the complainant and
in regard to continue supply of the goods cannot be implemented in so
far as the present Agreement is concerned. At the same time, the Company
shall not be allowed to perpetuate the unfair trade practice inherent in
the Clause of the standard form Agreement. Hence, it would be just and
E proper to modify the order of Commission by directing that the Company
should take steps to purge the restrictive trade practice by suitably
amending the Clause or identical clause wherever it occurs in all the
Agreements with its dealers. [896-F-H)

2.4. Normally, the Commission is not empowered to probe into the
F question as.to the validity of termination of the contract under one Clause
or the other of the Agreement. The Commission cannot assume the role
of the Civil Court in this regard. It is true that the Commission has
incidental and ancillary power to consider whether the termination of the
dealership was a device to perpetuate the objectionable trade practices
and whether such termination is closely inter-linked with the continuance
G of restrictive trade practice. The Commission did not hold that the
termination under clause 29 would per se give rise to restrktive trade
practices or that the termination under Clause 29 is a cloak to circumvent
Clause 28 in order to go ahead with the restrictive trade practices. In fact,
some of the findings of the Commission Indicate that there was some
H justification to feel dissatisfied with the manner of conducting business by
)'
.,

PEI CO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDD I, J.] 887

the dealer. The fact also remains that a number of letters which he had A
been writing to the appellant company protesting against alleged
unfairness and discriminatory treatment, evoked no response from the
Company. No reason, whatsoever, has been given as to why the contract
which was terminated ostensibly in exercise of the right reserved under
the Agreement should be revived. Obviously, such direction cannot be B
construed to be one made with a view to compensate the loss to the
complainant. As far as the compensation for the loss is concerned, it is
open to the Commission to pass suitable orders on that application; but,
the direction not to give effect to the termination letter, thereby reviving

-- the contract goes clearly beyond the powers of the Commission, especially
for the reason that the Commission did not record a finding that the
termination of the contract was in the teeth of the provisions of the Act
C

and was resorted to only with a view to perpetuate the restrictive trade
practices. Consequently, the direction to resume supplies of the products
in equally unsustainable. [897-F-H; 898-A-D]

3. The order to discontinue the restrictive trade practice covered by D
the charge relating to area restriction becomes otiose in view of the finding
that the dealership agreement which has been terminated, cannot be
revived at this stage. The question whether the cease and desist order
under Clause 37(1)(a) could be passed in relation to the restrictive trade
practice held proved against the appellant therefore becomes academic. E
[899-A-B)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7079 of
1996.

From the Judgment and Order dated 22.11.95 of the M.R.T.P. F
Commission, New Deilhi in R.T.P.E. No. 1616 of 1987.

Jay Savla for the Appellants.

J.M. Mukhi, Ms. Shakumbhary Singh, M.K. Garg, Tufail A. Khan,
Rajiv Nanda and P. Parmeswaran for the Respondents.
G
The Judgment of the Court was delivered by

- P. VENKAT ARAMA REDDI, J. This is an appeal under Section 55
of the Monopolies and Restrictive Trade Practices Act, 1969 (referred to
hereinafter as 'the Act') against the order of the Commission in R.T.P. Enquiry H
888 SUPREME COURT REPORTS [2004) 2 S.C.R.

A No. 1616 of 1987. The Commission, having held that the appellant indulged
in certain restrictive trade practices prejudicial to public interest, directed the
-
appellant to desist from indulging in such practices in future and to amend
the offending clause in the dealership agreement. The Commission further
directed the appellant not to give effect to the tennination of dealership of the
complainant (2nd respondent herein) and to ensure the supply of Philips
B products "at least to the .extent of the supply made in the year 1986" subject
to the placement of necessary orders by the complainant.

The factual background leading to the filing of the complaint is as
follows:

c The appellant Company manufactures and sells certain audio products.
It has a vast network of dealers - about 1800 throughout the country who are
appointed on principal to principal basis. In Gwalior, the appellant had a
dealer by name Mis. Evergreen operating since long from its shop at Sarafa
Bazar. In the year 1985, the appellant appointed the 2nd respondent (hereinafter
D referred to as 'R-2' or 'complainant') having its place of business at Gwalior
as another dealer. An agreement dated 15.11.1985 which, it is not in dispute,
is in standard fonn was entered into. Clause 29 of the Agreement provided
for tennination of agreement by either party by giving to the other 30 days
notice in writing. In terms of this clause, the appellant by its notice dated
23.9.1987 gave 30 days notice to R-2, terminated the dealership on expiry of
E the notice period. According to the appellant, such a step was taken as it was
not satisfied with the perfonnance of R-2. R-2 then filed a complaint before
the Commission. The complainant alleged that the appellant felt aggrieved by
some of the letters addressed by the complainant pointing out preferential
treatment to the old dealer Mis. Evergreen to the detriment of R-2. Certain
F instances of restrictive trade practices were enumerated in the complaint. The
complainant prayed for the issuance of 'cease and desist order' and a direction
to restore the dealership and resume supplies of Philips products. The
Commission decided to hold an enquiry. Accordingly, a notice of enquiry
was sent to the appellant on 21.1.1988. In the said notice, as many as five
restrictive trade practices alleged to have been committed by the appellant
G were set out. They are as follows:

(i) The respondents prohibited the complainant from dealing in or
selling the same type of p~oducts of the competitors. The practice
is restrictive trade practice within the meaning of Section 33( I)( c) ..-
of the MRTP Act;
H
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDD!, J.] 889

(ii) The respondents supplied to the complainant all types of goods A
irrespective of its order. For instance supply of 252 pcs of infra
lamps was made to the complainant on 31st December, 1985
even though the complainant had not placed any order for them.
Thus the respondent in a trade practice of full line forcing/
dumping unwanted goods and also delaying with holding the
supply of wanted and ordered goods. It is a restrictive trade practice B
within the meaning of Section 2(o) and Section 33(1)(b) of the
Act. The practice is a restrictive trade practice within the meaning
of Section 339(1)(b) of the MRTP Act.
....,.._ (iii) The complainant was allocated a particular territory to which its
dealership was confined. The practice of allocating a territory is c
a restrictive trade practice within the meaning of Section 33(1 )(g)
of the MRTP Act.
(iv) The respondent fixed the prices at which their products were to
be sold without giving liberty to the complainant to sell at prices
lower to its customers. The practice is a restrictive trade practice D
within the meaning of Section 33(1)(f) of the MRTP Act.
(v) The respondent discriminated against the complainant and gave a
favoured treatment to their other dealer, viz. Evergreen, Sarafa
Bazar; Gwalior in making supplies of Philip products. The practice
is a restrictive trade practice within the meaning of Section 2(o)(ii) E
of the MR TP Act.

It appears that during the pendency of the inquiry, the Commission
issued an order of ad interim injunction. However, it was stayed by the
Bombay High Court on a writ petition filed by the appellant.
F
The appellant while denying the charges took the stand that the
complainant was not conducting the business properly inasmuch as the sales
dropped considerably during the period January, 1987 to September, 1987,
that the complainant delayed retirement of documents on more than one
occasion and even issued a cheque which was dishonoured by the Bank. The G
appellant pleaded that the power reserved to it under Clause 29 of the
Agreement was bona fide exercised in its business interest. The Commission
came to the conclusion that the allegations 3 and 5 (supra) stood proved and
the other allegations were not established. However, while discussing charge
No.2, the Commission having held that the allegation of dumping of unwanted H
products has not been proved and that the refusal to send supplies as per the
890 SUPREME COURT REPORTS [2004) 2 S.C.R.

A orders of the complainant was quite justified having regard to the defaults on
the part of the dealer, declared that Clause 7 of the Agreement per se amounted
to restrictive trade practice and therefore the respondent shall take action to
purge the same.

The Tribunal recorded its findings that the restrictive trade practices
B indulged in by R-2 had an adverse effect on engendering competition, that
the 'gateway' pleaded by him in terms of Clause (h) of Section 38(1) did not
come to his aid and that the restrictive trade practices in question were
prejudicial to public interest per se.

C We may now indicate the contentions advanced by the learned Counsel
for the appellant.

(1) The findings of the Commission with reference to charges (iii) &
(v) are legally unsupportable as the Commission arrived at the findings
arbitrarily without regard to the evidence on record. The conclusions are
D perverse.

(2) The Commission exceeded its jurisdiction and acted in violation of
principles of natural justice in giving a direction to delete Clause 7. The
validity of Clauses in the Agreement should not have been considere~. at all
by the Commission when the Agreement itself stood terminated.
E
(3) The direction to restore the dealership and the supplies is beyond
the scope of powers of the Commission.

(4) The Commission failed to give a finding that the alleged restrictive
trade practice is prejudicial to public interest before passing a 'cease and
F desist' order. Re : Contention No. I [Charges (iii) and (v)]

We shall first deal with the contention of the learned counsel for the
appellant that the findings recorded by the Commission in regard to charges
(iii) & (v) are without basis and unsupported by the evidence on record.

G Charge No. (iii)

In the context of Charge No.(iii), we may notice that under Clause 27
of the Agreement, "the Dealer shall be free to sell the goods to customers
from any part of India". As observed by the Commission, the said clause by
H itself "neither gives territorial freedom nor imposes any territorial restriction".
PEICO ELECTRONICS AND ELECTRICALS v. U.O.I. [REDDI, J.] 891
However, the Commission, after discussing the evidence, recorded its A
conclusion that the 'third charge has been proved in tenns of Section 33(l)(g)'.
Section 33(l)(g) speaks of an agreement to limit, restrict or withhold the
output or supply of any goods or allocate any areas or market for the disposal
of the goods. Though the Agreement does not place any restriction of the
type envisaged by Clause(g) of Section 33(1), there is a clear fmding supported B
by evidence that the appellant did resort to restrictive trade practice by
imposing a restriction on the complainant from selling the products from
Sarafa Bazar shop of the complainant. In this cont~xt, the affidavit of the
complainant's witness and the repeated letters addressed by the complainant
have been referred to by the Commission. The Commission took note of the
fact that the appellant sent no reply to these letters and at no point of time, C
made it clear to the complainant that it had no objection to the products being
sold from Sarafa Bazar complex. The Commission observed that even if the
complainant had occasionally sold some products from Sarafa Bazar, it does
not demolish the complainant's case that it was not allowed to sell from
Sarafa Bazar where the other dealer was having his showroom. We cannot
interfere with this finding of fact. If that be so, the act of the appellant falls D•
within the ambit of restrictive trade practice. By virtue of Section 33, read
with Clause (g), an agreement to allocate any area or market for the disposal
of the goods is deemed to be an agreement relating to restrictive trade practice.
The appellant cannot take the plea that in the absence of any such restriction
in the Agreement itself, he is free to impose such restriction in the course of E
dealings with the complainant. The considerations set out in various clauses
of Section 33(1) would be equally relevant in deciding the question whether
the restrictions imposed in actual practice amount to restrictive trade practices
within the meaning of the Act. Incidentally, we may observe that the allocation
of a particular area or market for the disposal of the goods is likely to hamper
or restrict the competition as held by the Tribunal and in that sense, even the F
opening part of the definition in .Clause (o) of Section 2 gets attracted. Though
we feel that the phraseology used in charge No.3 viz., "allocation of a territory
to which the dealership was confined" is inappropriate, the Commission's
finding cannot be set aside merely for that reason. The substance of the
charge was well understood by the appellant and the complainant put in its G
defence accordingly.

Charge No. (v)

- As per the charge, the appellant gave a favourable treatment to the
other dealer, namely, Mis Evergreen in making supplies of Philips products H
892 SUPREME COURT REPORTS [2004] 2 S.C.R.

A and thus the appellant discriminated against the complainant. In the context
of this allegation, the real grievance made out by the complainant is that fast
-
moving and popular products were being supplied to M/s Evergreen, whereas
the complainant was mostly getting slow moving items. It was further alleged
that Mis Evergreen was free to sell the Philips products from their showroom
at Sarafa Bazar to any non Philips products dealers not only at Gwalior but
B also in four other Districts whereas the same facility was denied to the
complainant. The1 charge of discrimination was held established only on the
ground that M/s Evergreen was given freedom to sell the appellant's products
-
from Sarafa Bazaar, but the cornplainant was not allowed to sell from its
Sarafa Bazaar shop. This, according to the Commission, has resulted in
C discriminatory treatment against the complainant, attracting Section 2(o)(ii)
of the Act. It may be recalled that the Commission recorded the same finding
while dealing with charge No.(iii) i.e., area restriction. To the extent that the
area restriction was placed on the complainant but not on M/s Evergreen, it
will be an instance of discrimination and the finding of the Commission to
this extent cannot be faulted. However, the Commission did not record any
D finding with reference to the allegation that there was discrimination in the
matter of supply of goods. Not a word is said about it. We are pointing out
this particular aspect for the reason that charge No.(v) held to have been
proved by the Commission is widely couched and it speaks of favourable·
treatment to M/s Evergreen in regard to supply of goods. There is no finding
E of the Commission on this aspect of the case. Yet, the Commission proceeded
on the basis that th_e charge as a whole was proved. Be that as it may, there
is a formidable difficulty in sustaining this charge. The Commission held that
the act of discrimination, as found by it, is a restrictive trade practice within
the meaning of Section 2(o)(ii)* of the Act. The said provision reads:

F (o) "restrictive trade practice" means a trade practice which has, or
may have the effect of preventing, distorting or restricting,
competition in any manner and in particular -
----
(i) xx xx x
(ii) which tends to bring about manipulation of prices, or conditions
G of delivery or to affect the flow of supplies in the market relating
to goods or services in such manner as to impose on the consumers
unjustified costs or restrictions.

If Clause (ii) has to be applied, there must be a further finding that the

H •emphasis supplied
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDD!, J.] 893

impugned trade practice has the effect of imposing on the consumers unjustified A
costs or restrictions. Construing the same provision, this Court in the case of
Hindustan Lever Ltd. v. Director General (Investigation & Registration) and
Anr., [2001] 2 SCC 474 observed thus:

"As the plain reading of the said definition itself discloses, and also
as rightly understood by the Commission· in issuing the notice, there B
are two parts to the definition - one is which relates to carrying on
of such trade practice which has or may have the effect of preventing,
distorting or restricting competition in aily manner and secondly, the
carrying on of such trade practice which inter alia has the effect of
imposing unjustified costs or restrictions on the consumers." It was C
then held in the next paragraph -

" .... but what we have to see is as to whether the appellant has been
guilty of preventing, distorting and restricting competition amongst
the dealers which was the allegation levelled against it. In the absence
of such a finding and there not being even a whisper in the order that D
any action of the appellant had the effect of imposing unjustified
costs or restrictions on the consumers, the Commission fell in error
in passing the order against the appellant."

The same is the situation here. There is no finding whatsoever with respect
to one of the crucial ingredients of Section 2(o)(ii). Moreover, we find nothing E
in the evidence to enable the Commission to arrive at a finding on the question
whether the act of the appellant in disallowing the complainant from effecting
the sales from its second shop at Sarafa Bazaar had resulted in or likely to
result in the imposition of unjustified burden on the consumers. We are
therefore of the view that the Commission's ftnding under charge No.(v) that F
the appellant resorted to restrictive trade practice within the meaning of Section
- 2(o)(ii) is legally erroneous and is liable to be set aside. Re : Contention
No.2 (Clause 7 of Agreement)

Clause 7 of the Agreement reads as follows:

(7) The Company gives no guarantee or undertaking that it will supply G
the Dealer's requirements of the Company's products against its
orders and in any event can accept no responsibility or liability
for its failure or refusal to give supply or delay in effecting supply,
for any reason whatsoever.

According to the Commission, Clause 7, in its present form, has the
H
894 SUPREME COURT REPORTS [2004] 2 S.C.R.

A potential of bringing about a restrictive trade practice and therefore it should
be amended. We are inclined to endorse the view of the Commission on this
-
point. Clause 7 with its sweeping phraseology, is heavily weighted in favour
of the appellant. Taking umbrage under the latter part of clause 7, the appellant
can arbitrarily withhold or delay the supply of goods without assigning any
B reason and yet disown its responsibility or liability arising out of its arbitrary
action. The Commission is justified in holding that it is per se a restrictive
trade practice. An agreement to limit, restrict or withhold the output or supply
of any goods falls within the mischief of clause (g) of Section 33( I) and
therefore it must be deemed to be an agreement relating to restrictive trade
practice as per the mandate of Section 33(1). When once it is held that any _,...
C clause of the Agreement comes within the sweep of Clauses (a) to (I) of sub-
section (I) of Section 33, no further enquiry is required to find out whether
it falls within the parameters of Section 2(o). This legal position has been
settled by a three Judge Bench of this Court in the case of Valtas Limited,
Bombay v. Union of India and Ors., [1995] Suppl. 2 SCC 498. This Court
D observed ..... .

" ........ Trade practices enumerated in clauses (a) to (I) of sub-Section
(!) of Section 33 shall be deemed to have now been statutorily
determined and specified as restrictive trade practices. It cannot,
therefore, be urged that although a particular agreement is covered by
E one or other clauses of sub-Section (I) of Section 33, still it shall not
amount to an agreement containing conditions which can be held to
be restrictive trade practices within the meaning of the Act.

***
-
Now it is no more open to the Commission or to the Supreme Court
F to test and examine any of the trade practices mentioned in clauses
(a) to (I) of sub-Section (I) of Section 33 in the light of Section 2(o)
of the Act for the purpose of recording a finding as to whether those
types of trade practices shall be restrictive trade practices within the
meaning of Section 2(o) of the Act. This exercise has to be done only
G in respect of such trade practices which have not been enumerated in
any of the clauses from (a) to (1). Only such trade practices have to
be examined in the light of Section 2(o) of the Act, as to whether
they amounted to restrictive trade practices ..... "

Again it was clarified in paragraph 12 -
H
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDDI, 1.) 895

" ......... But the fact remains that once the Commission is satisfied that A
a particular agreement which has not been registered under Section
35, falls within any of the clauses from (a) to (1) of sub-Section (1)
of Section 33, then no further inquiry is to be done, as to whether
such agreement relates to restrictive trade practices or not. The statutory
fiction incorporated :n sub-Section (1) of Section 33 shall also be B
applicable in respect of such agreements apart from the penalty
provided under Section 48 of the Act. As such there is not much
scope for discrimination between those who have got their agreements
registered and those who have not got their agreements registered."

Referring to the case of Mahindra and Mahindra Ltd. v. Union of C
India, [1979] 2 SCC 529 on which reliance has been placed by the appellant's
counsel in the present case, the three Judge Bench made it clear in Voltas
case that the situation has changed with the introduction of a statutory fiction
in the main part of sub-Section (1) of Section 33. It was observed that Clauses
(a) to (I) of sub-Section (1) of Section 33 are in the nature of statutory
illustrations of restrictive trade practices. Faced with this difficulty, the learned D
counsel for the appellant harped on the argument that the offensive nature of
Clause 7 was not the subject-matter of charge and enquiry and therefore no
direction should have been given by the Commission for the deletion/
amendment of Clause 7, especially when charge No.(ii) has not been sustained.
We find it difficult to accept this contention, though plausible it is. E
Though in the notice of inquiry, the Commission did not specifically
refer to the invalidity of Clause 7, we find from the pleadings and the order
of the Commission that this issue did crop up for consideration and the
parties did advance arguments on this point at length. It may be noticed that
in the rejoinder the complainant while referring to the averments in para 5 of F
the reply, challenged the appellant's version that there were restrictive
provisions in the Agreement "giving arbitrary discretion to the Company in
meeting with the dealer's requirement". It is not in dispute that arguments
were advanced on this aspect as well. It is obvious that the Commission need
not confine itself to the points raised in the complaint. Under Section 10 of G
the Act, the Commission is invested with the power to enquire into any
restrictive or monopolistic trade practice upon its own knowledge or
information. In other words, the Commission can suo motu enquire into such
trade practices and take necessary follow-up action. The knowledge or
information can as well be derived from the facts disclosed in the complaint
petition, the pleadings or from the material adduced in the case. The H
'Y
896 SUPREME COURT REPORTS [2004] 2 S.C.R.

A Commission will be failing in its duty if it does not take not~ of restrictive
trade practices that come to its notice in the course of enquiry into a complaint.
In our considered view, the omission to record a formal proceeding framing
an issue or the point for suo motu consideration does not by itself vitiate the
decision ofthe Commission. However, it is implicit in the exercise of such
power that adequate opportunity ought to be given to the affected party to
B meet the point which is the subject matter of suo motu enquiry. There is no
bar to the combination of an enquiry into the allegations made by the
complainant and the suo motu enquiry into a matter coming to its notice. In
testing the validity of the action taken by the Commission from the procedural
angle, the approach of the Court should be such as to promote the objectives
·C of the Act. A narrow or pedantic approach ought to be eschewed. Viewed
from this angle, we are unable to hold that the Commission out-stepped its
limits in testing the legality of Clause 7 or that the appellant was handicapped
in meeting its case on account of non-framing of 'charge' relating to Clause
7 of the Agreement.

D The next question is whether in view of termination of Agreement, the
Commission was precluded from probing into the validity of the relevant
clause in the Agreement. It is not in dispute that the clause of this nature is
incorporated in all the Agreements entered into with the dealers. In other
words, the Agreement is in a standard form. As held by the Commission,
E apart from the fact that Clause 7 per se is a restrictive trade practice, it has
the potential of giving rise to restrictive trade practices in future. Therefore,
the Commission, in exerCise of its power under Clause (b) of Section 37(1),
directed that the clause should be suitably amended so as to remove the
offensive sting in it. Having regard to our decision on Contention No.3, the
Commission's directive cannot be implemented in so far as the present
F Agreement is concerned. At the same time, the appellant shall not be allowed
to perpetuate the unfair trade practice inherent in Clause 7 of the standard
form Agreement. We, therefore, consider it just and proper to modify the
order of Commission by directing that the appellant should take steps to
purge the restrictive trade practice by suitably amending Clause 7 or identical
G clause wherever it occurs in all the Agreements with its dealers and file a
report to the Commission accordingly.

Re : Contention No.3 (Termination of Agreement)

The next ground of attack is on the order of the Commission restraining
H the appellant from acting on letter of termination of dealership and further
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDDI, J.] 897

directing the supply of Philips products "atleast to the extent of supply made A
in the year 1986". It is contended that the contract having been terminated,
the Commission had no power and jurisdiction to keep the contract alive. To
buttress this argument, the learned counsel for the appellant has referred to
the provisions of Sections 14 and 41 of the Specific Relief Act and contended
that the contract, which is in its nature terminable, cannot be specifically
enforced and no injunction can be granted on the ground of breach of contract. B
Attention has been drawn to Clause 29 of the Agreement under which the
contract has been purportedly terminated. Clause 29 reads:

"This agreement shall remain in force until terminated by either party
....... by giving to the other 30 days' notice in writing."
c
As against this, it is the contention of the learned counsel for R-2 that the
termination was not bona fide but it was done only with a view to perpetuate
the restrictive trade practices against which R-2 was always protesting. If the
appellant-Company felt that R-2, as a dealer, acted in a manner contrary to
the interests of the Company or committed breach of any of the terms of the D
Agreement, Clause 28 should have been invoked and R-2 should have been
put on notice regarding the alleged grounds of termination. Termination under
Clause 29 was resorted to for extraneous reasons. In regard to the power of
the Commission to pass such an order, it is submitted that the termination of
dealership was a sequel to and in aid of the restrictive trade practices of the
appellant. According to the learned senior counsel for R-2 the tennination of E
dealership had a direct and inextricable connection with the restrictive trade
practices adopted by the appellant and in such circumstances the Commission
was well within its power to direct the restoration of the contract and the
supplies. We find it difficult to accept the contention of the learned counsel
for R-2. Normally, the Commission is not empowered to probe into the F
question whether the contract was validly terminated under one Clause or the
other of the Agreement. The Commission cannot assume the role of the civil
Court in this regard. True, as contended by the learned counsel for the appellant
the Commission has incidental and ancillary power to consider whether the
termination of the dealership was a device to perpetuate the objectionable
trade practices and whether such termination is closely inter-linked with the G
continuance of restrictive trade practice. But, we search in vain for a specific
finding by the Commission in this regard. The Commission did not hold that
the termination under Clause 29 which undoubtedly gives a right to either
party to the Agreement to put an end to it by giving 30 days' notice would
per se give rise to restrictive trade practices or that the termination under H
898 SUPREME COURT REPORTS [2004] 2 S.C.R.

A Clause 29 is a cloak to circumvent Clause 28 in order to go ahead with the
restrictive trade practices. In fact, some of the findings of the Commission,
- ,

B
which we have already adverted to, indicate that there was some justification
to feel dissatisfied with the manner of conducting business by R-2. The fact
also remains that a number of letters which R-2 had been writing to the
appellant protesting against alleged unfairness and discriminatory treatment,
-·
evoked no response from the appellant. Thus, when there is much to be said
on both sides, the Commission should have recorded a specific finding on the
lines indicated above. No reason, whatsoever, has been given as to why the
-
contract which was terminated ostensibly in exercise of the right reserved
under the Agreement should be revived. Obviously, the direction of this
•C nature cannot be construed to be one made with a view to compensate the
Joss to the complainant. As far as the compensation for the loss is concerned,
it is Section 12 A which is applicable and an application has already been
filed under that provision. Of course, it is open to the Commission to pass
suitable orders on that application; but, the direction not to give effect to the
termination letter, thereby reviving the contract goes clearly beyond the powers
of the Commission, especially for the reason that the Commission did not
record a finding that the termination of the contract was in the teeth of the
provisions of the Act and was resorted to only with a view to perpetuate the
restrictive trade practices. Consequently, the direction to resume supplies of
Philips products is equally unsustainable.

Re : Contention No.4 (Legality of 'cease and desist' order)

It is contended that the 'cease and desist' order under Section 37(a)
should not have been passed unless the Commission finds that the restrictive
trade practice is prejudicial to public interest. By virtue of Section 38(l)(h),
IF the restrictive trade practice would not be treated as contrary to public interest
if "the restrictive trade practice does not directly or indirectly restrict or
discourage competition to any material degree in the relevant trade or industry
and is not likely to do so". It is contended that the alleged restrictions imposed
on a single dealer - R-2 cannot affect competition to any material degree,
. . . . more so when the audio products are not short-supply items. On the other
J
hand it is contended by the learned counsel for the 2nd respondent that there
is a presumption under Section 38 that a restrictive trade practice is prejudicial
to public interest and therefore the burden is on the appellant to make out a
case under Clause (h) of Section 38(1) and such burden has not been
discharged by the appellant. Moreover, it is pointed out that there is a specific
:_I finding in 'this regard by the Commission that the 'gateway' pleaded by the
PEICO ELECTRONICS AND ELECTRICALS v. U.0.1. [REDD I, J.] 899

appellant by taking recourse to Clause (h) cannot be sustained. It is submitted A
that the Commission has given certain reasons such as the trade scenario in
Gwalior and those reasons cannot be said to be irrelevant. Though there is
considerable force in the argument of respondent's counsel, there is no need
to express an opinion in this regard for the reason that the order to discontinue
the restrictive trade practice covered by charge No.3 becomes otiose in view B

- of our finding that the dealership agreement which has been tenninated,
cannot be revived at this stage. Further discussion of the question whether the
cease and desist order under Clause 37(l)(a) could be passed in relation to
the restrictive trade practice held proved against the appellant therefore
becomes academic.
IL

The conclusions we have reached are summed up as follows: c
I. The finding of the Tribunal on charge No. iii is upheld.
2. The finding in respect of the charge No.v is unsustainable.
3. The Commission is justified in holding that Clause 7 of the
Agreement is a restrictive trade practice within the meaning of D
Clause (g) of Section 33(1) of M.R.T.P. Act and it has the effect
of distorting or restricting competition. The direction of the
Commission to amend Clause 7 suitably is correct. Irrespective of
the termination of the Agreement between appellant and R-2, the
appellant should take steps to amend a similar clause existing in E

- 4.
other agreements of similar nature with the dealers.
The Commission exceeded its jurisdiction in giving a direction
not to give effect to the letter terminating the Agreement and to
restore the supplies to the complainant. Such a direction cannot
be sustained in the absence of a finding that the termination of
Agreement was contrary to the provisions of the Act or it is a F
device to circumvent the provisions of the Act so as to perpetuate
the restrictive trade practice.
5. The 'cease and desist' order passed under Section 37(l)(a)
becomes otiose a:id inoperative in view of the fact that the contract
stands te1minated. The remedy of the complainant (R-2) is to G
pursue his claim for compensation under Section 12-B for the
loss suffered by him on account of the restrictive trade practice
covered by charge No. iii.
The appeal is disposed of accordingly without costs.
S.K.S. Appeal disposed of.